Constructing Luxury for Consumers

Constructing Luxury for Consumers WHAT IS LUXURY? The word ‘luxury derives from the Latin word ‘luxus , which according to the Latin Oxford dictionary signifies ‘soft or extravagant living, indulgence and ‘sumptuousness, luxuriousness, opulence (Christodoulides, Michaelidou, Li, 2008). THE TRADITIONAL, ECONOMIC VIEW There are two aspects to consider when defining luxury, the psychological value and the value of the product/service itself. The psychological value of luxury comes from its function as a status symbol and from a highly involved consumption experience that is strongly congruent to a persons self-concept. From a product perspective, luxury brands are frequently defined in terms of their excellent quality, high transaction value, distinctiveness, exclusivity and craftsmanship (Fionda Moore, 2008). In his paper on International Retail Marketing, T.B. Jackson proposes the following as the core characteristics of a luxury product: ‘†¦ exclusivity, premium prices, image and status which combine to make them more desirable for reasons other than function (Jackson, 2004). Dimitri Mortelmans, in his paper ‘The concept of luxury, says there are three main characteristics in [a narrow] definition of luxury: extra value, high quality and exclusivity. The fourth, derived, characteristic is high price. * Extra value Extra value here is loosely defined to include design, aesthetic value any innovation or attribute that makes the product unique. * High quality Superior quality is an essential component of luxury products. Luxury products have been typically been associated with fine craftsmanship, precision and skill. * Exclusivity Exclusivity in luxury products comes from two factors: (a) the goods are made in limited quantity and distribution is strictly controlled. Haute couture began when royal tailors custom made garments that were made only for one user. Till date, products belonging to the highest category of luxury are made in scant quantities. It is also crucial to decide where all these products will be available in order to make them rare. (b) Luxury goods are typically priced so high that they automatically exclude a majority of the population from their target group. In the world of luxury, rarity value sells, because it is the rarity that the customer wants to own. Owning such a product makes the consumer feel privileged to be part of a select group of people. High price When a product or service is superior in quality has extra value and also has to be exclusive, then the price automatically becomes high. (Mortelmans, 2005) Traditionally, there were four principal categories of luxury goods: fashion (couture, ready-to-wear, and accessories), perfumes and cosmetics, wines and spirits and watches and jewellery. Today, luxury has expanded to include many more categories such as luxury automobiles, hospitality (hotels, tourism, airlines) private banking and home furnishings among others. Among these, the luxury fashion goods category accounts for the largest proportion of luxury goods sales (with a 42 per cent share in 2003) and also showed the strongest product category growth in 2007 (Fionda Moore, 2008). NEED FOR LUXURY MOTIVES FOR CONSUMPTION In their paper ‘The specificity of luxury management: Turning marketing upside down Kapferer and Bastien express that for the outward oriented motivations, â€Å"Luxury converts the raw material that is money into a culturally sophisticated product that is social stratification†. Where the inward directed motivations are concerned, â€Å"luxury should have a very strong personal and hedonistic component; otherwise it is no longer luxury but simple snobbery†. (Kapferer Bastien, 2008) According to Wiedmann, Hennigs and Siebels, â€Å"luxury is a subjective and multidimensional construct†. When studying consumer motivations for consumption of luxury, both outward (conspicuousness, snobbery, status) and inward (hedonism, perfectionist) directed motivations need to be taken into account. Additionally, these must be placed the situational and cultural context of consumption. (Wiedmann, Hennigs, Siebels, 2007) Wiedmann, Hennigs and Siebels have proposed four dimensions that add value to luxury purchases in the consumers mind: Financial Dimension of Luxury Value Perception The financial dimension captures the monetary value that consumers are willing to put on the purchase. This will take into account aspects like price, return on investment, resale value and discount. Functional Dimension of Luxury Value Perception This is the core benefit or utility derived from the luxury product or service purchased. This will take into account the attributes of the product such as its quality, durability, reliability, usability etc. Individual Dimension of Luxury Value Perception The individual dimension addresses the inward oriented motivations or the personal value derived from luxury. This includes benefits like self identity, materialism and hedonism. Social Dimension of Luxury Value Perception This dimension has been the most researched and appears to be the largest contributor to the value derived from luxury. The social dimensions of luxury value include recognition or being identified as a part of a particular social group, conspicuousness and prestige value within a social group and a sense of power in a social context. (Wiedmann, Hennigs, Siebels, 2007) In â€Å"A Review and a Conceptual Framework of Prestige-Seeking Consumer Behavior†, Vigneron and Johnson have suggested that the primary driver for the purchase of luxury is prestige-seeking behaviour. The prestige benefits derived out of luxury purchases are of two types: inter-personal (outward oriented) and personal (inward oriented). (Vigneron Johnson, 1999) Interpersonal effects:  · The Veblen effect perceived conscious value Veblenian consumers attach greater importance to price as an indicator of prestige. This comes from the fact that these consumers often use price as evidence to judge quality. They also tend to perceive higher quality products as granting higher prestige.  · The Snob effect perceived unique value ‘Snobs have a need to be unique and seek prestige through differentiation. The snob effect manifests itself in two forms: (a) when a new product/collection is launched, these consumers will want to be the first to buy (innovators) (b) they will choose not to use a product once the general masses have adopted it. Snobs see higher price as an indicator of uniqueness and exclusivity.  · The Bandwagon effect perceived social value This is the reverse of the snob effect. These consumers, the followers, seek prestige through group affiliation. In the words of Vigneron and Johnson, â€Å"bandwagon consumers attach less importance to price as an indicator of prestige, but will put a greater emphasis on the effect they make on others while consuming prestige brands† Personal effects:  · The hedonic effect perceived emotional value Luxury purchases have emotional value attached to them beyond their functional utility. These emotions could be aesthetic appeal, sensory pleasure, excitement etc. The consumer here is more concerned about her own feelings than those of others around her. The luxury product could be fantasy or self rewarding behaviour.  · The perfectionist effect perceived quality value These consumers seek superior quality as an indicator of prestige. They rely on their own judgements about the quality of products and services. They may see higher price as an evidence of better quality. (Vigneron Johnson, 1999) (Husic Cicic, 2009) THE ESSENCE OF LUXURY In her book ‘Let them eat Cake: Marketing to the masses as well as the classes, Pamela N. Danzinger (Danziger, 2005) explains that consumers link luxury to fantasy fulfilment. They fantasize about how their life will change once they own a luxury product; â€Å"Luxury takes on a transcendent quality linked to the persons hopes, wishes and dreams†, she says. Once we have achieved this fantasy, bought that luxury product, after some time it becomes ordinary and then we wish for something else, something even more luxurious and unattainable which then becomes the new object of fantasy. As Danzinger puts it, â€Å"that which is unattainable is overwhelmingly attractive and desirable†; once we have attained something, it loses its mystique and charm and becomes ordinary. Thus, to consumers, luxury is ultimately the unattainable. OLD vs. NEW LUXURY (MASSTIGE) There was a time when â€Å"luxury† as a category was restricted in the hands of the affluent and was meant only for the crà ¨me de la crà ¨me of society. Today, however, the scenario has changed more and more people can now afford a small piece of the pie with the democratisation of luxury. According to a study done by IBM Business Consulting Services (2004), todays consumers are demanding lower prices on basic goods but at the same time, they are willing to pay premiums for products that matter more to them. (Florin, Callen, Mullen, Kropp, 2007) Traditional luxury, now commonly known as ‘old luxury, was all about conspicuous consumption and its appeal was derived from the status and prestige that came with the ownership of these products. The attributes and quality of the offering itself were of supreme importance as it was a cultural symbol of high taste. In the years after the Second World War, material wealth was highly sought after. The generation that witnessed World War II and subsequently the great depression had seen immense scarcity; this generation basked in the joy of material things and sought luxury as a symbol of wealth. (Danziger, 2005) While old luxury was about the thing itself, new luxury is about the experience. The economy, worldwide, improved continuously in the 80s and 90s leading to increasing disposable incomes, lower unemployment rates and a growing wealthy class in emerging countries. Simultaneously, the democratisation of luxury meant that luxury has now become more accessible to a larger population. Goods that fall under the ‘new luxury category are less expensive than traditional luxury goods yet, they have some confines in terms of their price as exclusivity. They are affordable, yet they enjoy a reasonable level of perceived prestige as compared to middle-range products. The prices of ‘new luxury items are kept only slightly above those of middle ranges. This helps in targeting a much larger segment than the traditional luxury niches. The consumers for this new luxury come from middle and upper middle classes for whom luxury purchase is a form of self reward and indulgence. Their focus is a desire for living the good life and private pleasure. As Twitchell says in his book ‘Living It Up: Our Love Affair With Luxury â€Å"These new customers for luxury are younger than clients of the old luxe used to be, they are far more numerous, they make their money far sooner, and they are far more flexible in financing and fickle in choice. They do not stay put. They now have money to burn. The competition for their attention is intense, and their consumption patterns if you havent noticed are changing life for the rest of us.† (Truong, McColl, Kitchen, 2009) The term masstige was introduced by Michael Silverstein and Neil Fiske to refer to a new category which aims at providing luxury to the masses. The term is derived from the words mass + prestige goods and services that occupy the space between mass and class (Silverstein Fiske, 2003). These products are priced at a premium over the convention but are not always positioned at the top of their category in price. A recent survey by the Boston Consulting Group (2004) said that the top four categories for ‘trading up are homes, cars, appliances and dining out (Florin, Callen, Mullen, Kropp, 2007). Examples of new luxury goods are the urban BMW 1-series starting at $ 19 000, Ralph Lauren Polo shirts sold in outlets for $ 9 and Swarovski crystals with prices as low as $ 20. (Truong, McColl, Kitchen, 2009) MASSTIGE TO MASS? Critics argue that brands which enjoy the tag of ‘masstige today, could become the ‘mass brand tomorrow. By definition, it is contradictory to sell prestige and exclusivity in mass (because when something is owned in mass, it would no longer be prestigious). These products may be successful at first, but their enchantment for the consumer would be inversely proportional to their success. The critical success factor, then, for masstige brands would lie in maintaining the equilibrium between prestige differentiation and a reasonable price premium. â€Å"In order for a masstige product to be successful in the long term, it must have a noticeable differentiation in design and/or technology compared to the regular products in the category. This differentiation must be real and marked. Promises of â€Å"improvements† are not enough if they dont really exist or are imperceptible to the consumer† (Smith, 2007). LONG LIVE LUXURY! With the advent of masstige, top end luxury houses like Armani and LVMH are entering into the affordable luxury arena. Critics argue that as luxury becomes more and more affordable, the concept itself will die out. Here is where understanding the sign-value of luxury is important the concept is not absolute but relative. Over the centuries, what constitutes luxury has changed, but the concept has endured. Brands that are at the top may not remain there, even objects that are considered to be part of luxury may change, but because of human social needs, the concept of luxury will persist. (Mortelmans, 2005) LUXURY vs. MASSTIGE Motivations for consumption When defining masstige, price is not the only criteria to differentiate between the realm of luxury and that of accessible luxury. An extremely important difference lies in the motivations for consumption. While the reasons for consumption of luxury can be both internally as well as externally driven, consumption of masstige is in most cases externally driven. Conspicuous consumption, which formed the basis of luxury when the concept originated, now forms the basis for the masstige category. Hence, a Valentino gown does not have a logo printed on it but a Tommy Hilfiger product will always have a label, logo and some visible identification mark on it so that others can see it. Global versus local Luxury is global, it remains the same across the world luxury brands target the elite who expect the same experience from their brands whether they are in the United States, Europe or in Asia. Although various brands have specific associations with the heritage of their countries of origin, a luxury brand is not modified to suit a particular geography. It is meant for people who are global, and hence the brand perception and delivery has to be ‘global in approach and consistent in delivery everywhere. Masstige on the other hand needs to be localised to an extent because the consumption of masstige is directed outwards. It has to adapt to the cultural ethos of the geography in order to remain relevant and in the process also gets absorbed into the culture of any society. LUXURY IN THE INDIAN CONTEXT TRACING THE ROOTS Luxury in India has its roots going back to the era of the Maharajas who, for centuries, splashed their enormous wealth and lived opulently. The Mughal dynastys wealth and power was a legend but as it waned, the old Indian maharajas began to re-emerge, and new ones began to rise. With the arrival of the British Raj, western influences began to show in the collections at the royal courts. Then began the romance with brands like LVMH, Cartier, Gerrard and Asprey. â€Å"Indian courts commissioned all sorts of fine art like jewellery, woodwork, painting, enamelling, inlaid weaponry and intricate floor coverings† (Gopinath, 2009). Jewellers like Cartier and Van Cleef Arpels, Louis Vuittons bags and luggage and watches by Jaeger-Le Coultre, which were the icons of luxury in Europe, were frequently commissioned by kings. At the same time, western styles of dressing were being adopted. (Forster) The Maharajas, who were patrons of music, arts, poetry and craftsmen, began to patronise European and Indian artists and designers as well. The Victoria and Albert Museum, London, has opened an exhibition ‘Maharaja: The Splendour of Indias Royal Courts in November, which will be on display till January 2010. The exhibition explores the lives of the Indian royals beginning from the 18th century till the end of the British rule. The exhibition showcases 250 items a number of which have been loaned from the private collections of the erstwhile royal families of India. Some of the objects on display are the Maharaja of Indores Modernist furniture, a Louis Vuitton travelling case, French designed sarees, a Rolls Royce Phantom and the studding diamond necklace of Maharaja Yadarendra Singh of Patiala. The necklace which was completed in 1928, originally contained 2930 diamonds, weighed almost 1000 carats and was part of the largest single commission that Paris jeweller Cartier has ever executed. Though Western brands are now flocking to India after its new found affluents, India has clearly been consuming western luxury since way before. LUXURIFICATION OF THE INDIAN SOCIETY The Indian luxury landscape is rapidly transforming owing to a combination of economic and social factors: Rising Affluence Merrill Lynch and Capgemini report that the number of high-net-worth individuals in India (at least US$1 million in financial assets) increased by 20.5% in 2006. According to the McKinsey Global Institute, consumers earning more than 1,000,000 rupees a year will total 24 million by 2025 larger than Chinas comparable segment. Their share of private consumption is projected to increase from 7% to 20% in 2025. However, it is the emergence and steady rise of ‘mass affluence of the Indian middle class coupled with aspirational mindsets and lifestyles that is driving consumer demand. The scope for luxury today is larger than it has ever been in India before owing to the strength of the population that can now afford luxury goods. According to sereval reports by McKinsey Global Institue, the Indian middle class (household disposable incomes from Rs. 200,000 to 1 million a year) will increase from approximately 5% to 41% of the population and will become the worlds fifth largest consumer market by 2025. (Foreign Policy) Exposure to Media Media explosion in the form of television, radio, internet and print has led to increased product knowledge and awareness of brands. Fashion and lifestyle media have established a strong following as mainstream media are taking greater interest in consumer lifestyles, fashion trends and luxury brands. A milestone here was the launch of the Indian edition of Vogue magazine in 2007. Along with the platforms available for advertising, the spending on advertising is also rising. According to ZenithOptimedia, advertising expenditures in India increased from US$1.1 billion in 1996 to US$4.7 billion in 2006 and forecasts suggest that this number will exceed $7 billion in 2009. Accessibility of luxury brands A couple of decades ago, in order to purchase luxury brands such as Gucci, Cartier and Chanel, Indian consumers had to travel to Europe or the U.S. Today, the biggest names of the world like LVMH, Armani and Tommy Hilfiger are present in not only Delhi and Mumbai, but are also setting shop in the upcoming metros like Pune and Hyderabad. Inadequate retail space has also been a challenge to luxury brands operating in India which have been, until recently, hidden in lobbies of five star hotels. The retail boom is changing this scenario. Organised retailing, which currently comprises 6% of the market, is expected to rise to 15% in the next two years. Retail space has increased from 22 mn sq ft in 2002 to 101 mn sq ft (almost 5 times) in 2007 and is predicted to increase by a further 200% to 300 mn sq ft by 2012. (Jindal, 2008) With the retail revolution, newer formats like luxury shopping malls are evolving. An example of these new avenues for luxury brands is the Delhi luxury-goods mall, Emporio which opened in March 2008 which houses over 70 international high-end brands. In 2006, again, AT Kearney has ranked India at the top of its Retail Development Index as the worlds most attractive market for mass international retail expansion. Brands like Marks Spencer, McDonalds and Tommy Hilfiger have entered the market with franchisees due to market regulations which are in the process of loosening up further. (Euromonitor International, 2007) Market Regulation The further liberalisation of the Indian economy has made the market attractive to international players despite heavy import duties on luxury goods and foreign investors are looking to make long-term investments in the country. (Atwal Khan, 2008) THE CHANGING FACE OF THE INDIAN LUXURY CONSUMER In an interview the Pitch magazine, Radha Chadha, author of the book ‘The Cult of the Luxury Brand said that India currently is at an early stage of the luxury brand culture. â€Å"Typically, it starts when a country goes through a rapid economic growth and that has been happening in our country for the past few years. It puts money into peoples hands, at some point they want to demonstrate that. The third stage is what I call the show-off stage, where China is today and some of India is moving towards. Then comes the fit-in stage where we see a large scale adoption of luxe fuelled by the need to conform. The last stage is way of life where people are habituated to luxe products; they become confident and discerning buyers, like in emerged markets†. (Chadha, 2008) The luxury market in India has traditionally been segmented according to two distinct customer groups the affluents and the non-affluents. With the pace of economic development, rise of the middle class and the transition towards a consumer society, the profile of the luxury consumer has also evolved. Clustering luxury consumers into segments based simply on socio-economic classifications is erroneous. Todays luxury consumer is much more diverse and hence the old segmentation and classifications need to be reassessed. The regular classifications of customers based on income or SEC are not sufficient today to gauge clearly who are the consumers who are actually consuming luxury (Pant, 2009). India has always had a small elite segment that has been shopping abroad and buying western brands for ages. This elite class consists of the descendants of the royal families, nawabs and small rulers and long standing industrial families like the Birlas, Tatas, Godrej, Bajaj, Mahindras, some tracing their roots back to pre independence days. (Chadha Husband, 2007). This was the select, privileged segment that was exposed to and could consume luxury. In todays scenario, a typical BPO operator in Mumbai or Delhi is spending a substantial proportion of their monthly salary on international brands of clothes, accessories and cosmetics. â€Å"These are consumers are not affluent in the traditional sense of originating from wealthy family backgrounds, but are ambitious and successful in their chosen professions. Personal performance based on merit has got them to where they are today. Todays luxury shopper could be a broker, an entrepreneur, IT specialist or a student† (Atwal Khan, 2008). They purchase luxury not simply to show off, but as a self-reward. As Atwal and Khan say in their paper ‘Luxury marketing in India: because Im worth it, this generation consumes brands, goes shopping and purchases luxury as they firmly believe in the sentiment â€Å"because Im worth it†. The Indian Affluents In her article in the Brand Reporters special issue on luxury marketing, Vatsala Pant says that it is to try and understand these diverse consumers that one such measure, the Nielsen UMAR (Upper and Middle Rich) survey has redefined affluence using lifestyle and ownership of consumer durables factors (Pant, 2009). On the basis of these factors, Nielsen has estimated that there are 2.6 million affluent households across 35 cities (metros and upcoming metros) of India. Affluent Households in India (Source: Nielsen UMAR survey) — LANGUAGE Luxury is no longer reserved for the English-speaking elite. The survey reveals that 51% of these affluents have been educated in languages other than English and dont speak English as a primary language at home. The primary language spoken, then, becomes the preferred language for media consumption. — FAMILY STRUCTURE Ninety percent of these households live in nuclear families or nuclear families with elders living with them. The average size of the family is 4 members with the chief wage earner typically over 35 years of age. — DURABLES While all the households have the basic durables like TV, refrigerator, washing machines and mobile phones, the Rich segment is seen to have more expensive double-door refrigerators, front loading washing machines and microwaves as well. 20% of the affluent households have two or more TV sets. — MEDIA CONSUMPTION While the most popular medium is TV (watched in 98% of the HH), the next most popular is print where 70% HH read English dailies. However, only 10% read English business dailies. Popularity of watching cinema outside the home is more (67%) than radio listenership (54% of HH). 55% of the HH browse the internet while only 38% read magazines. (Pant, 2009) Changing Trends of the Affluent Indian Consumer Indian consumers are value conscious and highly value driven. Not just products, but the delivery and experience are becoming increasingly important. With the advent of international luxury brands with a bang into the country, consumers want world-class brands, and expect world-class quality, service and experience. They expect the latest designs and most modern technologies available. As the purchasing power has gone up, so have aspirations. The concept of wealth to be enjoyed rather than just display and badge value has emerged. Indulgence and self-rewarding behaviour are on the rise rather than simply the need to show-off. (Raman, 2007) NEW LUXURY FOR INDIA In their paper ‘Luxury marketing in India: because Im worth it Glyn Atwal and Shaziya Khan say that â€Å"the establishment of different levels of luxury ranging from ultra luxury to affordable luxury is a reflection of luxurys increasing mass appeal in India†. The concept of masstige or new luxury is extremely relevant in the Indian context for two reasons firstly, the market for masstige is huge is India owing to rising disposable incomes and a burgeoning middle class. Secondly, Indians are extremely value conscious and new luxury would, for many, be the first opportunity to experience luxury. This, then, could be the first step for a large population to move on to luxury. Rising incomes and the recent retail boom in the country coupled with increasing awareness has sparked off consumption of new luxury brands in India. At the same time, the arrival of international brands and players on the scene has provided accessibility to global resources and efficient supply chains. â€Å"The Indian society is moving towards NUF (Nuclear Urban Family) where each individual has their own tastes and preferences† (Marketing Funda: Masstige, 2007). The consumer is becoming more demanding in terms of value, quality and service. A Euromonitor report on India states that for the burgeoning middle class, the spending area is shopping for brand names. Consumerism is a significant aspect of the new, younger middle class which gives a lot of importance to lifestyle and branded goods. (Euromonitor International, 2007) A look into the Indian consumers luxury needs In their qualitative research of the Indian consumers, Glyn Atwal and Shaziya Khan discovered that the Indian consumer associates luxury with perceptions of not just quality and performance but with comfort, beauty, pleasure and style. The product is no longer the sole criteria for choice, the service and experience of shopping are crucial to the decision making process. When societies experience fast economic growth, the phenomenon of luxury usually gains popularity because the acquisition of luxury is a symbol of prestige and signifies how fast you have climbed up the ladder of social mobility. A similar phenomenon is being seen in India but the motivations to acquire luxury brands go beyond displaying social status. Consumers are moving on from an outward expression of luxury to an inward directed emotional experience. Luxury brands are helping people â€Å"define identities and express values†. (Atwal Khan, 2008) CHAPTER 2: INDIAN ADVERTISING- AESTHETICS CONTENT ADVERTISING INDIAN CULTURE William Mazzarellas ethnographic study of ‘globalizing consumerism in the context of Indian advertising talks about how advertising is produced in metropolitan India and transformations in the Indian public culture along with the rise of mass consumerism. As Mazzarella puts it: â€Å"As an aesthetic interface of post colonial capitalism, the everyday practice of advertising constantly calls into question the conceptual alignments that ground business discourse: local and global, culture and capital, particular and universal, content and form† (Mazzarella, 2003) Goods possess meaning of two kinds: 1. given and propagated by manufacturers and 2.that have been created by the users themselves because of the way they use them, symbolic meaning etc. Material culture is not simply about objects but about the â€Å"intimate connection between the object and its users†. The value of any material is co-constructed by the manufacturer/seller, the user and the society/social norms/perceptions/evaluations. While necessity is culturally associated with lower incomes and to an extent poverty, luxury stands at the other extreme being associated with wealth as well as taste. Comfort comes somewhere in between. Again, what we define as necessities or luxury comes from our cultural framework. In India, the cultural framework is defined largely by the middle class for whom, say, not just food, shelter and clothing but hygiene too may be necessity. (Nayar, 2009) The Indian culture has deeply embedded in it values of saving and economic prudence. This is why trade promotion deals like 25% extra on packs, free gifts etc. work so well in the market. This economic prudence is not just monetary, it also has a strong influence of moral economy i.e. economy that is good for the family as a whole. A married woman feels she has been a good mother and wife if she has saved money on her daily grocery shopping. The other fundamental values are those of safety and privacy of the family and to be aesthically and culturally presentable. (Nayar, 2009) With the rise of globalization and proliferation of MNCs into the country post 1991, ironically, a new movement began that of the New Swadeshi. In the increasingly ‘global scenario, Indians were searching for what is their own. The term swadeshi re-entered the vocabulary of India during 1996-97. Over the last decade, the swadeshi and the global have merged, adapted and evolved from the transnational media of the 1990s which were supposed to have an â€Å"Indian soul and international feel†. The formula here was to show stereotypical exotic imagery of the Indian â€Å"tradition† and place it in an international context. < Constructing Luxury for Consumers Constructing Luxury for Consumers WHAT IS LUXURY? The word ‘luxury derives from the Latin word ‘luxus , which according to the Latin Oxford dictionary signifies ‘soft or extravagant living, indulgence and ‘sumptuousness, luxuriousness, opulence (Christodoulides, Michaelidou, Li, 2008). THE TRADITIONAL, ECONOMIC VIEW There are two aspects to consider when defining luxury, the psychological value and the value of the product/service itself. The psychological value of luxury comes from its function as a status symbol and from a highly involved consumption experience that is strongly congruent to a persons self-concept. From a product perspective, luxury brands are frequently defined in terms of their excellent quality, high transaction value, distinctiveness, exclusivity and craftsmanship (Fionda Moore, 2008). In his paper on International Retail Marketing, T.B. Jackson proposes the following as the core characteristics of a luxury product: ‘†¦ exclusivity, premium prices, image and status which combine to make them more desirable for reasons other than function (Jackson, 2004). Dimitri Mortelmans, in his paper ‘The concept of luxury, says there are three main characteristics in [a narrow] definition of luxury: extra value, high quality and exclusivity. The fourth, derived, characteristic is high price. * Extra value Extra value here is loosely defined to include design, aesthetic value any innovation or attribute that makes the product unique. * High quality Superior quality is an essential component of luxury products. Luxury products have been typically been associated with fine craftsmanship, precision and skill. * Exclusivity Exclusivity in luxury products comes from two factors: (a) the goods are made in limited quantity and distribution is strictly controlled. Haute couture began when royal tailors custom made garments that were made only for one user. Till date, products belonging to the highest category of luxury are made in scant quantities. It is also crucial to decide where all these products will be available in order to make them rare. (b) Luxury goods are typically priced so high that they automatically exclude a majority of the population from their target group. In the world of luxury, rarity value sells, because it is the rarity that the customer wants to own. Owning such a product makes the consumer feel privileged to be part of a select group of people. High price When a product or service is superior in quality has extra value and also has to be exclusive, then the price automatically becomes high. (Mortelmans, 2005) Traditionally, there were four principal categories of luxury goods: fashion (couture, ready-to-wear, and accessories), perfumes and cosmetics, wines and spirits and watches and jewellery. Today, luxury has expanded to include many more categories such as luxury automobiles, hospitality (hotels, tourism, airlines) private banking and home furnishings among others. Among these, the luxury fashion goods category accounts for the largest proportion of luxury goods sales (with a 42 per cent share in 2003) and also showed the strongest product category growth in 2007 (Fionda Moore, 2008). NEED FOR LUXURY MOTIVES FOR CONSUMPTION In their paper ‘The specificity of luxury management: Turning marketing upside down Kapferer and Bastien express that for the outward oriented motivations, â€Å"Luxury converts the raw material that is money into a culturally sophisticated product that is social stratification†. Where the inward directed motivations are concerned, â€Å"luxury should have a very strong personal and hedonistic component; otherwise it is no longer luxury but simple snobbery†. (Kapferer Bastien, 2008) According to Wiedmann, Hennigs and Siebels, â€Å"luxury is a subjective and multidimensional construct†. When studying consumer motivations for consumption of luxury, both outward (conspicuousness, snobbery, status) and inward (hedonism, perfectionist) directed motivations need to be taken into account. Additionally, these must be placed the situational and cultural context of consumption. (Wiedmann, Hennigs, Siebels, 2007) Wiedmann, Hennigs and Siebels have proposed four dimensions that add value to luxury purchases in the consumers mind: Financial Dimension of Luxury Value Perception The financial dimension captures the monetary value that consumers are willing to put on the purchase. This will take into account aspects like price, return on investment, resale value and discount. Functional Dimension of Luxury Value Perception This is the core benefit or utility derived from the luxury product or service purchased. This will take into account the attributes of the product such as its quality, durability, reliability, usability etc. Individual Dimension of Luxury Value Perception The individual dimension addresses the inward oriented motivations or the personal value derived from luxury. This includes benefits like self identity, materialism and hedonism. Social Dimension of Luxury Value Perception This dimension has been the most researched and appears to be the largest contributor to the value derived from luxury. The social dimensions of luxury value include recognition or being identified as a part of a particular social group, conspicuousness and prestige value within a social group and a sense of power in a social context. (Wiedmann, Hennigs, Siebels, 2007) In â€Å"A Review and a Conceptual Framework of Prestige-Seeking Consumer Behavior†, Vigneron and Johnson have suggested that the primary driver for the purchase of luxury is prestige-seeking behaviour. The prestige benefits derived out of luxury purchases are of two types: inter-personal (outward oriented) and personal (inward oriented). (Vigneron Johnson, 1999) Interpersonal effects:  · The Veblen effect perceived conscious value Veblenian consumers attach greater importance to price as an indicator of prestige. This comes from the fact that these consumers often use price as evidence to judge quality. They also tend to perceive higher quality products as granting higher prestige.  · The Snob effect perceived unique value ‘Snobs have a need to be unique and seek prestige through differentiation. The snob effect manifests itself in two forms: (a) when a new product/collection is launched, these consumers will want to be the first to buy (innovators) (b) they will choose not to use a product once the general masses have adopted it. Snobs see higher price as an indicator of uniqueness and exclusivity.  · The Bandwagon effect perceived social value This is the reverse of the snob effect. These consumers, the followers, seek prestige through group affiliation. In the words of Vigneron and Johnson, â€Å"bandwagon consumers attach less importance to price as an indicator of prestige, but will put a greater emphasis on the effect they make on others while consuming prestige brands† Personal effects:  · The hedonic effect perceived emotional value Luxury purchases have emotional value attached to them beyond their functional utility. These emotions could be aesthetic appeal, sensory pleasure, excitement etc. The consumer here is more concerned about her own feelings than those of others around her. The luxury product could be fantasy or self rewarding behaviour.  · The perfectionist effect perceived quality value These consumers seek superior quality as an indicator of prestige. They rely on their own judgements about the quality of products and services. They may see higher price as an evidence of better quality. (Vigneron Johnson, 1999) (Husic Cicic, 2009) THE ESSENCE OF LUXURY In her book ‘Let them eat Cake: Marketing to the masses as well as the classes, Pamela N. Danzinger (Danziger, 2005) explains that consumers link luxury to fantasy fulfilment. They fantasize about how their life will change once they own a luxury product; â€Å"Luxury takes on a transcendent quality linked to the persons hopes, wishes and dreams†, she says. Once we have achieved this fantasy, bought that luxury product, after some time it becomes ordinary and then we wish for something else, something even more luxurious and unattainable which then becomes the new object of fantasy. As Danzinger puts it, â€Å"that which is unattainable is overwhelmingly attractive and desirable†; once we have attained something, it loses its mystique and charm and becomes ordinary. Thus, to consumers, luxury is ultimately the unattainable. OLD vs. NEW LUXURY (MASSTIGE) There was a time when â€Å"luxury† as a category was restricted in the hands of the affluent and was meant only for the crà ¨me de la crà ¨me of society. Today, however, the scenario has changed more and more people can now afford a small piece of the pie with the democratisation of luxury. According to a study done by IBM Business Consulting Services (2004), todays consumers are demanding lower prices on basic goods but at the same time, they are willing to pay premiums for products that matter more to them. (Florin, Callen, Mullen, Kropp, 2007) Traditional luxury, now commonly known as ‘old luxury, was all about conspicuous consumption and its appeal was derived from the status and prestige that came with the ownership of these products. The attributes and quality of the offering itself were of supreme importance as it was a cultural symbol of high taste. In the years after the Second World War, material wealth was highly sought after. The generation that witnessed World War II and subsequently the great depression had seen immense scarcity; this generation basked in the joy of material things and sought luxury as a symbol of wealth. (Danziger, 2005) While old luxury was about the thing itself, new luxury is about the experience. The economy, worldwide, improved continuously in the 80s and 90s leading to increasing disposable incomes, lower unemployment rates and a growing wealthy class in emerging countries. Simultaneously, the democratisation of luxury meant that luxury has now become more accessible to a larger population. Goods that fall under the ‘new luxury category are less expensive than traditional luxury goods yet, they have some confines in terms of their price as exclusivity. They are affordable, yet they enjoy a reasonable level of perceived prestige as compared to middle-range products. The prices of ‘new luxury items are kept only slightly above those of middle ranges. This helps in targeting a much larger segment than the traditional luxury niches. The consumers for this new luxury come from middle and upper middle classes for whom luxury purchase is a form of self reward and indulgence. Their focus is a desire for living the good life and private pleasure. As Twitchell says in his book ‘Living It Up: Our Love Affair With Luxury â€Å"These new customers for luxury are younger than clients of the old luxe used to be, they are far more numerous, they make their money far sooner, and they are far more flexible in financing and fickle in choice. They do not stay put. They now have money to burn. The competition for their attention is intense, and their consumption patterns if you havent noticed are changing life for the rest of us.† (Truong, McColl, Kitchen, 2009) The term masstige was introduced by Michael Silverstein and Neil Fiske to refer to a new category which aims at providing luxury to the masses. The term is derived from the words mass + prestige goods and services that occupy the space between mass and class (Silverstein Fiske, 2003). These products are priced at a premium over the convention but are not always positioned at the top of their category in price. A recent survey by the Boston Consulting Group (2004) said that the top four categories for ‘trading up are homes, cars, appliances and dining out (Florin, Callen, Mullen, Kropp, 2007). Examples of new luxury goods are the urban BMW 1-series starting at $ 19 000, Ralph Lauren Polo shirts sold in outlets for $ 9 and Swarovski crystals with prices as low as $ 20. (Truong, McColl, Kitchen, 2009) MASSTIGE TO MASS? Critics argue that brands which enjoy the tag of ‘masstige today, could become the ‘mass brand tomorrow. By definition, it is contradictory to sell prestige and exclusivity in mass (because when something is owned in mass, it would no longer be prestigious). These products may be successful at first, but their enchantment for the consumer would be inversely proportional to their success. The critical success factor, then, for masstige brands would lie in maintaining the equilibrium between prestige differentiation and a reasonable price premium. â€Å"In order for a masstige product to be successful in the long term, it must have a noticeable differentiation in design and/or technology compared to the regular products in the category. This differentiation must be real and marked. Promises of â€Å"improvements† are not enough if they dont really exist or are imperceptible to the consumer† (Smith, 2007). LONG LIVE LUXURY! With the advent of masstige, top end luxury houses like Armani and LVMH are entering into the affordable luxury arena. Critics argue that as luxury becomes more and more affordable, the concept itself will die out. Here is where understanding the sign-value of luxury is important the concept is not absolute but relative. Over the centuries, what constitutes luxury has changed, but the concept has endured. Brands that are at the top may not remain there, even objects that are considered to be part of luxury may change, but because of human social needs, the concept of luxury will persist. (Mortelmans, 2005) LUXURY vs. MASSTIGE Motivations for consumption When defining masstige, price is not the only criteria to differentiate between the realm of luxury and that of accessible luxury. An extremely important difference lies in the motivations for consumption. While the reasons for consumption of luxury can be both internally as well as externally driven, consumption of masstige is in most cases externally driven. Conspicuous consumption, which formed the basis of luxury when the concept originated, now forms the basis for the masstige category. Hence, a Valentino gown does not have a logo printed on it but a Tommy Hilfiger product will always have a label, logo and some visible identification mark on it so that others can see it. Global versus local Luxury is global, it remains the same across the world luxury brands target the elite who expect the same experience from their brands whether they are in the United States, Europe or in Asia. Although various brands have specific associations with the heritage of their countries of origin, a luxury brand is not modified to suit a particular geography. It is meant for people who are global, and hence the brand perception and delivery has to be ‘global in approach and consistent in delivery everywhere. Masstige on the other hand needs to be localised to an extent because the consumption of masstige is directed outwards. It has to adapt to the cultural ethos of the geography in order to remain relevant and in the process also gets absorbed into the culture of any society. LUXURY IN THE INDIAN CONTEXT TRACING THE ROOTS Luxury in India has its roots going back to the era of the Maharajas who, for centuries, splashed their enormous wealth and lived opulently. The Mughal dynastys wealth and power was a legend but as it waned, the old Indian maharajas began to re-emerge, and new ones began to rise. With the arrival of the British Raj, western influences began to show in the collections at the royal courts. Then began the romance with brands like LVMH, Cartier, Gerrard and Asprey. â€Å"Indian courts commissioned all sorts of fine art like jewellery, woodwork, painting, enamelling, inlaid weaponry and intricate floor coverings† (Gopinath, 2009). Jewellers like Cartier and Van Cleef Arpels, Louis Vuittons bags and luggage and watches by Jaeger-Le Coultre, which were the icons of luxury in Europe, were frequently commissioned by kings. At the same time, western styles of dressing were being adopted. (Forster) The Maharajas, who were patrons of music, arts, poetry and craftsmen, began to patronise European and Indian artists and designers as well. The Victoria and Albert Museum, London, has opened an exhibition ‘Maharaja: The Splendour of Indias Royal Courts in November, which will be on display till January 2010. The exhibition explores the lives of the Indian royals beginning from the 18th century till the end of the British rule. The exhibition showcases 250 items a number of which have been loaned from the private collections of the erstwhile royal families of India. Some of the objects on display are the Maharaja of Indores Modernist furniture, a Louis Vuitton travelling case, French designed sarees, a Rolls Royce Phantom and the studding diamond necklace of Maharaja Yadarendra Singh of Patiala. The necklace which was completed in 1928, originally contained 2930 diamonds, weighed almost 1000 carats and was part of the largest single commission that Paris jeweller Cartier has ever executed. Though Western brands are now flocking to India after its new found affluents, India has clearly been consuming western luxury since way before. LUXURIFICATION OF THE INDIAN SOCIETY The Indian luxury landscape is rapidly transforming owing to a combination of economic and social factors: Rising Affluence Merrill Lynch and Capgemini report that the number of high-net-worth individuals in India (at least US$1 million in financial assets) increased by 20.5% in 2006. According to the McKinsey Global Institute, consumers earning more than 1,000,000 rupees a year will total 24 million by 2025 larger than Chinas comparable segment. Their share of private consumption is projected to increase from 7% to 20% in 2025. However, it is the emergence and steady rise of ‘mass affluence of the Indian middle class coupled with aspirational mindsets and lifestyles that is driving consumer demand. The scope for luxury today is larger than it has ever been in India before owing to the strength of the population that can now afford luxury goods. According to sereval reports by McKinsey Global Institue, the Indian middle class (household disposable incomes from Rs. 200,000 to 1 million a year) will increase from approximately 5% to 41% of the population and will become the worlds fifth largest consumer market by 2025. (Foreign Policy) Exposure to Media Media explosion in the form of television, radio, internet and print has led to increased product knowledge and awareness of brands. Fashion and lifestyle media have established a strong following as mainstream media are taking greater interest in consumer lifestyles, fashion trends and luxury brands. A milestone here was the launch of the Indian edition of Vogue magazine in 2007. Along with the platforms available for advertising, the spending on advertising is also rising. According to ZenithOptimedia, advertising expenditures in India increased from US$1.1 billion in 1996 to US$4.7 billion in 2006 and forecasts suggest that this number will exceed $7 billion in 2009. Accessibility of luxury brands A couple of decades ago, in order to purchase luxury brands such as Gucci, Cartier and Chanel, Indian consumers had to travel to Europe or the U.S. Today, the biggest names of the world like LVMH, Armani and Tommy Hilfiger are present in not only Delhi and Mumbai, but are also setting shop in the upcoming metros like Pune and Hyderabad. Inadequate retail space has also been a challenge to luxury brands operating in India which have been, until recently, hidden in lobbies of five star hotels. The retail boom is changing this scenario. Organised retailing, which currently comprises 6% of the market, is expected to rise to 15% in the next two years. Retail space has increased from 22 mn sq ft in 2002 to 101 mn sq ft (almost 5 times) in 2007 and is predicted to increase by a further 200% to 300 mn sq ft by 2012. (Jindal, 2008) With the retail revolution, newer formats like luxury shopping malls are evolving. An example of these new avenues for luxury brands is the Delhi luxury-goods mall, Emporio which opened in March 2008 which houses over 70 international high-end brands. In 2006, again, AT Kearney has ranked India at the top of its Retail Development Index as the worlds most attractive market for mass international retail expansion. Brands like Marks Spencer, McDonalds and Tommy Hilfiger have entered the market with franchisees due to market regulations which are in the process of loosening up further. (Euromonitor International, 2007) Market Regulation The further liberalisation of the Indian economy has made the market attractive to international players despite heavy import duties on luxury goods and foreign investors are looking to make long-term investments in the country. (Atwal Khan, 2008) THE CHANGING FACE OF THE INDIAN LUXURY CONSUMER In an interview the Pitch magazine, Radha Chadha, author of the book ‘The Cult of the Luxury Brand said that India currently is at an early stage of the luxury brand culture. â€Å"Typically, it starts when a country goes through a rapid economic growth and that has been happening in our country for the past few years. It puts money into peoples hands, at some point they want to demonstrate that. The third stage is what I call the show-off stage, where China is today and some of India is moving towards. Then comes the fit-in stage where we see a large scale adoption of luxe fuelled by the need to conform. The last stage is way of life where people are habituated to luxe products; they become confident and discerning buyers, like in emerged markets†. (Chadha, 2008) The luxury market in India has traditionally been segmented according to two distinct customer groups the affluents and the non-affluents. With the pace of economic development, rise of the middle class and the transition towards a consumer society, the profile of the luxury consumer has also evolved. Clustering luxury consumers into segments based simply on socio-economic classifications is erroneous. Todays luxury consumer is much more diverse and hence the old segmentation and classifications need to be reassessed. The regular classifications of customers based on income or SEC are not sufficient today to gauge clearly who are the consumers who are actually consuming luxury (Pant, 2009). India has always had a small elite segment that has been shopping abroad and buying western brands for ages. This elite class consists of the descendants of the royal families, nawabs and small rulers and long standing industrial families like the Birlas, Tatas, Godrej, Bajaj, Mahindras, some tracing their roots back to pre independence days. (Chadha Husband, 2007). This was the select, privileged segment that was exposed to and could consume luxury. In todays scenario, a typical BPO operator in Mumbai or Delhi is spending a substantial proportion of their monthly salary on international brands of clothes, accessories and cosmetics. â€Å"These are consumers are not affluent in the traditional sense of originating from wealthy family backgrounds, but are ambitious and successful in their chosen professions. Personal performance based on merit has got them to where they are today. Todays luxury shopper could be a broker, an entrepreneur, IT specialist or a student† (Atwal Khan, 2008). They purchase luxury not simply to show off, but as a self-reward. As Atwal and Khan say in their paper ‘Luxury marketing in India: because Im worth it, this generation consumes brands, goes shopping and purchases luxury as they firmly believe in the sentiment â€Å"because Im worth it†. The Indian Affluents In her article in the Brand Reporters special issue on luxury marketing, Vatsala Pant says that it is to try and understand these diverse consumers that one such measure, the Nielsen UMAR (Upper and Middle Rich) survey has redefined affluence using lifestyle and ownership of consumer durables factors (Pant, 2009). On the basis of these factors, Nielsen has estimated that there are 2.6 million affluent households across 35 cities (metros and upcoming metros) of India. Affluent Households in India (Source: Nielsen UMAR survey) — LANGUAGE Luxury is no longer reserved for the English-speaking elite. The survey reveals that 51% of these affluents have been educated in languages other than English and dont speak English as a primary language at home. The primary language spoken, then, becomes the preferred language for media consumption. — FAMILY STRUCTURE Ninety percent of these households live in nuclear families or nuclear families with elders living with them. The average size of the family is 4 members with the chief wage earner typically over 35 years of age. — DURABLES While all the households have the basic durables like TV, refrigerator, washing machines and mobile phones, the Rich segment is seen to have more expensive double-door refrigerators, front loading washing machines and microwaves as well. 20% of the affluent households have two or more TV sets. — MEDIA CONSUMPTION While the most popular medium is TV (watched in 98% of the HH), the next most popular is print where 70% HH read English dailies. However, only 10% read English business dailies. Popularity of watching cinema outside the home is more (67%) than radio listenership (54% of HH). 55% of the HH browse the internet while only 38% read magazines. (Pant, 2009) Changing Trends of the Affluent Indian Consumer Indian consumers are value conscious and highly value driven. Not just products, but the delivery and experience are becoming increasingly important. With the advent of international luxury brands with a bang into the country, consumers want world-class brands, and expect world-class quality, service and experience. They expect the latest designs and most modern technologies available. As the purchasing power has gone up, so have aspirations. The concept of wealth to be enjoyed rather than just display and badge value has emerged. Indulgence and self-rewarding behaviour are on the rise rather than simply the need to show-off. (Raman, 2007) NEW LUXURY FOR INDIA In their paper ‘Luxury marketing in India: because Im worth it Glyn Atwal and Shaziya Khan say that â€Å"the establishment of different levels of luxury ranging from ultra luxury to affordable luxury is a reflection of luxurys increasing mass appeal in India†. The concept of masstige or new luxury is extremely relevant in the Indian context for two reasons firstly, the market for masstige is huge is India owing to rising disposable incomes and a burgeoning middle class. Secondly, Indians are extremely value conscious and new luxury would, for many, be the first opportunity to experience luxury. This, then, could be the first step for a large population to move on to luxury. Rising incomes and the recent retail boom in the country coupled with increasing awareness has sparked off consumption of new luxury brands in India. At the same time, the arrival of international brands and players on the scene has provided accessibility to global resources and efficient supply chains. â€Å"The Indian society is moving towards NUF (Nuclear Urban Family) where each individual has their own tastes and preferences† (Marketing Funda: Masstige, 2007). The consumer is becoming more demanding in terms of value, quality and service. A Euromonitor report on India states that for the burgeoning middle class, the spending area is shopping for brand names. Consumerism is a significant aspect of the new, younger middle class which gives a lot of importance to lifestyle and branded goods. (Euromonitor International, 2007) A look into the Indian consumers luxury needs In their qualitative research of the Indian consumers, Glyn Atwal and Shaziya Khan discovered that the Indian consumer associates luxury with perceptions of not just quality and performance but with comfort, beauty, pleasure and style. The product is no longer the sole criteria for choice, the service and experience of shopping are crucial to the decision making process. When societies experience fast economic growth, the phenomenon of luxury usually gains popularity because the acquisition of luxury is a symbol of prestige and signifies how fast you have climbed up the ladder of social mobility. A similar phenomenon is being seen in India but the motivations to acquire luxury brands go beyond displaying social status. Consumers are moving on from an outward expression of luxury to an inward directed emotional experience. Luxury brands are helping people â€Å"define identities and express values†. (Atwal Khan, 2008) CHAPTER 2: INDIAN ADVERTISING- AESTHETICS CONTENT ADVERTISING INDIAN CULTURE William Mazzarellas ethnographic study of ‘globalizing consumerism in the context of Indian advertising talks about how advertising is produced in metropolitan India and transformations in the Indian public culture along with the rise of mass consumerism. As Mazzarella puts it: â€Å"As an aesthetic interface of post colonial capitalism, the everyday practice of advertising constantly calls into question the conceptual alignments that ground business discourse: local and global, culture and capital, particular and universal, content and form† (Mazzarella, 2003) Goods possess meaning of two kinds: 1. given and propagated by manufacturers and 2.that have been created by the users themselves because of the way they use them, symbolic meaning etc. Material culture is not simply about objects but about the â€Å"intimate connection between the object and its users†. The value of any material is co-constructed by the manufacturer/seller, the user and the society/social norms/perceptions/evaluations. While necessity is culturally associated with lower incomes and to an extent poverty, luxury stands at the other extreme being associated with wealth as well as taste. Comfort comes somewhere in between. Again, what we define as necessities or luxury comes from our cultural framework. In India, the cultural framework is defined largely by the middle class for whom, say, not just food, shelter and clothing but hygiene too may be necessity. (Nayar, 2009) The Indian culture has deeply embedded in it values of saving and economic prudence. This is why trade promotion deals like 25% extra on packs, free gifts etc. work so well in the market. This economic prudence is not just monetary, it also has a strong influence of moral economy i.e. economy that is good for the family as a whole. A married woman feels she has been a good mother and wife if she has saved money on her daily grocery shopping. The other fundamental values are those of safety and privacy of the family and to be aesthically and culturally presentable. (Nayar, 2009) With the rise of globalization and proliferation of MNCs into the country post 1991, ironically, a new movement began that of the New Swadeshi. In the increasingly ‘global scenario, Indians were searching for what is their own. The term swadeshi re-entered the vocabulary of India during 1996-97. Over the last decade, the swadeshi and the global have merged, adapted and evolved from the transnational media of the 1990s which were supposed to have an â€Å"Indian soul and international feel†. The formula here was to show stereotypical exotic imagery of the Indian â€Å"tradition† and place it in an international context. <